Trading earnings season: implied moves, IV crush and earnings gaps

Four times a year, nearly every US public company reports its results within a few weeks of each other. For traders, those weeks concentrate a large share of the year's single-stock risk into a handful of overnight moments. A stock that drifts 1% on a normal day can open 10% higher or lower the morning after its report, and the options market prices that possibility in advance.

This guide explains how earnings season is organized, how to read the market's implied move from option prices, why option prices usually fall sharply after the report (IV crush), and what the research says about price drift after earnings. It finishes with a real example: five consecutive Meta Platforms reports, two of which beat expectations and were still followed by drops. It is an educational outline of how earnings affect prices, not a strategy.

How earnings season works

US public companies must file quarterly reports with the SEC (Form 10-Q, or 10-K for the fiscal year) within set deadlines after each quarter ends. Most also publish a press release and hold a conference call with analysts on the day results come out. Because most companies use calendar quarters ending in March, June, September and December, their reports bunch together in the following weeks, roughly mid-January to mid-February, mid-April to mid-May, mid-July to mid-August and mid-October to mid-November. Large banks often report first, and retailers, whose fiscal years usually end in January, report later.

Two timing conventions matter for trading:

• Before market open (BMO): results come out in the early morning, and the reaction shows up in pre-market trading and at the 9:30 a.m. open.
• After market close (AMC): results come out after 4:00 p.m., the stock moves in after-hours trading, and the regular-session reaction is the next morning's open.

Either way, the regular session sees the news all at once, which is why earnings are the most common cause of large single-stock gaps (see Gap trading: price gap types, gap fills and what the data shows).

What moves the stock

The market reacts to the gap between results and expectations, not to the results alone. The usual yardsticks are:

• EPS versus the consensus estimate. The difference, as a percent, is the earnings surprise.
• Revenue versus consensus. Many investors weigh revenue as heavily as earnings.
• Guidance. A company's forecast for coming quarters often matters more than the quarter just ended.
• Details on the call: margins, spending plans, customer demand, one-time items.

A "beat" on EPS can still be followed by a fall if guidance disappoints, if the beat came from a one-time item, or if investors had expected an even bigger beat. The META example below shows this twice.

The implied move

Options on a stock become more expensive ahead of a scheduled report, because the report could produce a large move and option buyers pay for that possibility. The market's estimate of the size of that move can be read from the price of an at-the-money straddle: a call and a put at the strike nearest the stock price, with the first expiry after the report.

This is an approximation. The straddle also contains some time value that has nothing to do with earnings, and some traders scale it down (multiplying by roughly 0.85 is a common rule of thumb) to estimate a typical move rather than the break-even. Either way, the implied move is a market price, not a forecast you can rely on. Stocks regularly move more or less than it suggests.

IV crush

Implied volatility (IV) is the volatility that option prices imply (see Volatility and the VIX: historical vs implied volatility explained and Option premium and time value: decay, volatility and Black-Scholes). Before earnings, IV for the nearest expiries is usually elevated because the report is a known source of risk. Once the report is out, that risk is gone, and IV typically falls sharply, often by the next morning. Traders call this IV crush.

IV crush works in the other direction for option sellers: they collect the elevated premium but carry the risk that the move is larger than priced, which can produce losses far greater than the premium received. Options basics: how calls and puts work, with payoff diagrams covers those payoffs.

Post-earnings announcement drift

In 1968, Ray Ball and Philip Brown showed that stock prices kept drifting in the direction of an earnings surprise for weeks after the announcement. Victor Bernard and Jacob Thomas documented the effect in detail in 1989, and post-earnings announcement drift (PEAD) became one of the most studied anomalies in finance: it suggested the market under-reacted to earnings news.

More recent work questions whether it survives. Charles Martineau's 2022 paper argued that for large US stocks, prices have absorbed earnings surprises on the announcement day itself since about 2006, leaving no drift to capture; other researchers have disputed that conclusion. For a trader, the safe reading is that any drift in large, heavily followed stocks is small, uncertain and easily consumed by costs.

A real example: Meta Platforms, five reports

Meta reported its third-quarter 2025 results after the close on October 29, 2025. The stock had closed at $751.67. The next morning it opened at $669.15, a gap of −11.0%, and closed at $666.47, down 11.3%. Finabase's earnings history records reported EPS of $1.05 against a consensus estimate of $6.72. The company's release explained that the quarter included a one-time, non-cash income-tax charge of $15.93 billion and that EPS would have been $7.25 without it, above the estimate. Investors sold the stock anyway, which suggests the reaction was about more than the tax charge. The gap did not fill quickly: the stock fell as low as $581.25 on November 19 and did not trade back above $751.67 until September 2026, almost eleven months later.

Looking across five consecutive reports shows how loosely the headline surprise and the price reaction are linked:

Every reaction was large, between 7% and 11% on the day. Two misses were followed by falls, as might be expected, but so were two of the three beats, including a 56% EPS beat in April 2026. The direction was set by what investors made of the whole release, guidance and spending plans included, not by the EPS line. Nor was there a consistent drift afterwards: over the 20 sessions after the four reports with enough following data, the stock's moves ranged from −12.2% to +5.9%.

Pitfalls

• Holding through a report by accident. Check the date before opening any position. A swing trade can become an earnings bet without the trader noticing.
• Assuming stops limit the risk. The reaction is a gap; stops fill at or near the open.
• Buying options at the peak of IV. Options are most expensive just before the report. Being right on direction may not be enough.
• Treating the implied move as a range limit. It is roughly a one-standard-deviation estimate of size; larger moves are common.
• Over-reading the headline. Guidance and one-time items often matter more than the EPS surprise.
• Wrong date. Companies can confirm or move report dates; projected dates in calendars are estimates until the company announces them.

Ways traders approach earnings, compared

How Finabase helps

Finabase is a research app; it does not place trades. The earnings calendar lists upcoming and recent reports from US large caps by day, with each company's sector, last price and change. Each symbol page's earnings tab, for example META, shows the next expected report date with the consensus EPS estimate and a history of past reports with the estimate, reported EPS and surprise. The option chain shows bid, ask, volume, open interest and implied volatility for each expiry, which is what you need to read an implied move, and the chart shows the gaps those reports produced.

Frequently asked questions

When is earnings season?

For companies with calendar quarters, roughly mid-January to mid-February, mid-April to mid-May, mid-July to mid-August and mid-October to mid-November. Companies with other fiscal years report at other times.

How do you calculate an expected earnings move?

Add the prices of the at-the-money call and put for the first expiry after the report, and divide by the stock price. A $12 straddle on a $200 stock implies a move of about ±6%. It is an estimate of size, not direction.

What is IV crush?

It is the sharp drop in implied volatility, and therefore in option prices, once a scheduled event such as an earnings report has passed. Options bought before the report can lose value even if the stock moves in the expected direction.

Why does a stock fall after beating earnings?

Because the price already reflected expectations. Weak guidance, a beat driven by one-time items, or investors hoping for more can all outweigh a headline beat. META fell after two of three beats between October 2025 and October 2026.

Summary

Earnings season packs a quarter's worth of company news into a few weeks, and most of the reaction arrives as an overnight gap. Options price that risk in advance, and an at-the-money straddle gives a rough implied move; after the report, implied volatility usually collapses. Research once found that prices kept drifting after earnings surprises, but that effect is now disputed for large stocks. Meta's last five reports show the practical lesson: large moves are likely, their direction is hard to read from the headline number, and no order type removes the gap.